Why it’s wrong to say there’s nothing good in SM’s continuing expansion

Q: This request traces its motivation from one of your columns last June.  In that column you answered a small-medium supplier who was refused a shelf placement for its product by a “mega-retailer” because its product would compete in pricing against the mega-retailer’s house brand.  Even though you would not say so, we all knew who’s that mega-retailer and it’s obviously SM supermarket.

We’re also a small-medium supplier. Our own concern is still SM but for a very different and larger issue.  It’s the way SM has been expanding too fast.  In the process, it’s actually making every populated town in the country an SM mall dominated town.  In every affected town, we hear two persistent complaints.  The traffic  grows worse.  Second, it’s sad to see how so many small retailer businesses are forced to close shop.

So is there something really good in what SM is doing and good enough to offset the adverse effects of its excessive expansion?  Isn’t it time that we have a law to stop SM from what it’s doing?  Do we want this country to become known as the SM Mall Republic?

A: We’ve heard what you’re saying about SM before and in fact, we’ve even heard many other “bad” and worse things.  When you asked, “Is there something really good in what SM is doing…,” the context of your concern is no longer about your relationship as a supplier to SM.  Your question is now in a much larger context.  In fact, your chosen context is the country.  You made that explicit in your last question: “Do we want this country to become known as the SM Mall Republic?”

It’s important to be clear about context in order to give valid and logically correct answers to your questions.  So proceeding from the country context, we should start our diagnosis by clarifying first the role and function of retailing which is what SM is doing.  That’s the role and function for business-growing and for country economic development.

We begin with the business-growing role.  Among the marketing mix tools or the 4 Ps, placement or retailing according to Konosuke Matsushita is the most critical for starting and growing a business.  Matsushita is the Japanese industrialist who founded Panasonic and became known in Japan as “the god of management.”  When asked about the secret of his success in market launching a product, Matsushita said: “No product will move unless it is first in place.”  This meant that the very first order of starting any  business is to take care of the product’s store placement.  Advertising and sales promo come after but not first.

When Panasonic and his other brand, National, effectively broke into the European and later the US market, Matsushita was interviewed and asked by the business media what he did to gain immediate market entry.  He was reported to have been quite terse in his reply:  “I just asked where are the dealers and then got them.”  So at the micro industry level, retailing as store placement plays a critical role.  SM as the largest retailer in the country is playing that role.

In the context of a country’s economic development, it is another famous Japanese businessman, Isao Nakauchi, who gave retailing and distribution “an economic engine” role and function.  The late Nakauchi was the founder of The Daiei Inc., Japan’s largest retailer in the ’80s and the first half of the ’90s.  Writing about Nakauchi and Daiei, it was no other than Peter Drucker himself who said: “Distribution, rather than production, is likely to be the main engine of economic development.  …  What distinguishes distribution-led development is that, unlike investment-led development and export-led development, it not only develops businesses, it develops people.  People rather than money, develop an economy.”

When Drucker visited China in the late ’90s, businessmen there asked him if distribution-led development was only true in Japan.  Without any hesitation, Drucker replied: “Remember, it is people and not money that develop an economy.  So only distribution-led economic development can create the human resources which China needs more than anything else.”

Henry Sy is the Isao Nakauchi of the Philippines.  It is in his hands, in SM, where the main engine of the country’s economic development is therefore being driven.  At this stage of SM’s corporate development, what’s needed is for SM to rise to that responsibility as one of the driving engines of Philippine economic development.  It may be too much to say it’s THE driving engine.  But at the same time, you and the rest of us must first unlearn our flawed assumption that retailing and distribution have no or very little role to play in our country’s economic development.  Many recent tiger economies have shown that manufacturing is not the only engine of economic development.

Keep your questions coming.  Send them to us at [email protected] or [email protected]. God bless!